IFRS 15 Revenue aggregation and disaggregation at best

IFRS 15 Revenue aggregation and disaggregation

The objective of the disclosure requirements in IFRS 15 is to provide “sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers”.

To achieve that objective, entities are required to provide disclosures about their contracts with customers, the significant judgements, and changes in those judgements, used in applying the standards and assets arising from costs to obtain and fulfil its contracts. [IFRS 15 110]

While an entity must provide sufficient information to meet the objective, the disclosures described in the standards are not intended to be a checklist of minimum requirements. That is, entities do not need to include disclosures that are not relevant or are not material to them. In addition, an entity does not need to disclose information in accordance with the revenue standards if it discloses that information in accordance with another standard.

Entities are required to consider the level of detail necessary to satisfy the disclosure objective and the degree of emphasis to place on each of the various requirements. The level of aggregation or disaggregation of disclosures requires judgement.

Furthermore, entities are required to ensure that useful information is not obscured (by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics).

Disaggregation of revenue

The standard includes the following disclosure requirements in relation to the disaggregation of revenue:

Disclosure requirements in IFRS 15

Quantitative

Disaggregated revenue by categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors

IFRS 15 114

If the entity applies IFRS 8 Operating Segments, an entity must disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment

IFRS 15 115

While the standard does not specify precisely how revenue should be disaggregated, the application guidance indicates that the most appropriate categories for a particular entity will depend on its facts and circumstances. [IFRS 15 B88] When selecting a category to use to disaggregate revenue, entities should consider how revenue is disaggregated for other purposes, including:

  • How it discloses revenue in other communications (e.g., press releases, other public filings)
  • How information is regularly reviewed by the chief operating decision maker to evaluate the financial performance of operating segments (in accordance with IFRS 8)
  • How other information is used by the entity, or users of the financial statements, to evaluate financial performance or make resource allocation decisions

In addition, entities need to make this determination based on entity-specific and/or industry-specific factors that would be most meaningful for their businesses.

Examples of categories might include, but are not limited, to the following: [IFRS 15 B89]

Category

Examples

Type of good or service

Major product lines

Geographical region

Country or region

Market or type of customer

Government and non-government customers

Contract duration

Short-term and long-term contracts

Timing of transfer of goods or services

Goods or services transferred to customers:

• At a point in time

• Over time

Sales channels

Goods sold:

• Directly to consumers

• Through intermediaries

When determining categories for disaggregation of revenue, entities need to analyse specific risk factors for each of their revenue streams to determine the appropriate level of revenue disaggregation that will be beneficial to users of the financial statements. If certain risk factors could lead to changes in the nature, amount, timing and uncertainty of revenue recognition and cash flows, those factors will need to be considered as part of the evaluation.

IFRS 15 provides the following example to illustrate how an entity might disclose its disaggregated revenue:

Example 41 illustrates the requirements in paragraphs 114–115 and B87–B89 of IFRS 15 on the disaggregation of revenue disclosure.

Example 41—Disaggregation of revenue—quantitative disclosure

IE210 An entity reports the following segments: consumer products, transportation and energy, in accordance with IFRS 8 Operating Segments. When the entity prepares its investor presentations, it disaggregates revenue into primary geographical markets, major product lines and timing of revenue recognition (ie goods transferred at a point in time or services transferred over time).

IE211 The entity determines that the categories used in the investor presentations can be used to meet the objective of the disaggregation disclosure requirement in paragraph 114 of IFRS 15, which is to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following table illustrates the disaggregation disclosure by primary geographical market, major product line and timing of revenue recognition, including a reconciliation of how the disaggregated revenue ties in with the consumer products, transportation and energy segments, in accordance with paragraph 115 of IFRS 15.

IFRS 15 Revenue aggregation and disaggregation

Segments

Consumer
products
Transport Energy Total
IFRS 15 Revenue aggregation and disaggregation CU CU CU CU
Primary geographical markets
North America 990 2,250 5,250 8,490
Europe 300 750 1,000 2,050
Asia 700 260 960
IFRS 15 Revenue aggregation and disaggregation 1,990 3,260 6,250 11,500
IFRS 15 Revenue aggregation and disaggregation
Major goods/service lines
Office supplies 600 600
Appliances 990 990
Clothing 400 400
Motorcycles 500 500
Automobiles 2,760 2,760
Solar panels 1,000 1,000
Power plant 5,250 5,250
IFRS 15 Revenue aggregation and disaggregation 1,990 3,260 6,250 11,500
IFRS 15 Revenue aggregation and disaggregation
Timing of revenue recognition
Goods transferred at a point in time 1,990 3,260 1,000 6,250
Services transferred over time 5,250 5,250
IFRS 15 Revenue aggregation and disaggregation 1,990 3,260 6,250 11,500

Since entities are encouraged to tailor their disclosure of disaggregated revenue, they are unlikely to follow a single approach.

Consistent with the approach illustrated in the Extract from IFRS 15 above, some entities provided disaggregated revenue information within their segment reporting disclosure. As shown in the below example 1, Capita plc disclosed both revenue by major product line and segment revenue by contract type in its segment note (note 6) within its 2018 annual financial statements.

In the summary of significant accounting policies, it specifically stated that this approach is consistent with the objective of the disclosure requirement and explained the differences in the terminology used in previous financial statements.

The segment revenue disclosures provided in accordance with IFRS 8 might be based on non-GAAP information (i.e., the revenue that is reported to the chief operating decision maker may be calculated on a basis that is not in accordance with IFRS 15).

In such a situation, an entity may need to disclose additional information to meet the objective in IFRS 15 114. [IFRS 15 BC340]

EXAMPLE 1 – Excerpts from Capita plc Annual Report 2018

……

2 Summary of significant accounting policies

……..

The Group disaggregates revenue from contracts with customers by contract type, as management believe this best depicts how the nature, amount, timing and uncertainty of the Group’s revenue and cash flows are affected by economic factors. Categories are: ‘long-term contractual – greater than two years’; and ‘short-term contractual – less than two years’. Years based from service commencement date.

…….

Note 6 Segmental information

…….

The tables below present revenue, trading result and certain asset and liability information for the Group’s business segments for the years 2018 and 2017. All operational divisions are continuing and the 2017 segmental information has been restated for the impact of businesses exited or held for sale in 2018 with total adjusted revenue reduced by £76.1m and profit before tax reduced by £17.8m.IFRS 15 Revenue aggregation and disaggregation

End of example 1


SNCF Mobilités disclosed disaggregated revenue by main types of services provided, by type of customer, and by timing of transfer of services in the revenue note (note 3.2) in its 2018 annual financial statements. The disaggregated revenue table in the below example 2 included a column for SNCF Mobilités’ reportable segments and the amount of total revenue was reconciled with the total revenue disclosed in the segment note.

This is important because it helps users to understand the relationship between the disclosure of disaggregated revenue in the revenue note and the revenue information that is disclosed for each reportable segment in the segment note.

EXAMPLE 2 – SNCF Mobilités

Note 3.2 REVENUE

SNCF Mobilités Group generates revenue from services provided at a point-in-time or continuously over a certain period to public or private individuals under the following main service lines:

SNCF Annual Report 2018 3.2 REVENUE Table

End of example 2


Slater and Gordon Limited included segment disclosures in note 2 (representing the Group has one reportable segment, which provides legal services in Australia), but also separately disclosed disaggregated revenue by major product line within its segment note and type of contract in the revenue note (note 3.1.2) in its June 2019 annual financial statements:

EXAMPLE 3 – Slater and Gordon Limited

Slater and Gordon Annual report 2019 3.1 Revenue segmentation

End of example 3


In its 2018 financial statements, FIFA split its disclosure of disaggregated revenue between the primary financial statements and the notes. In the statement of comprehensive income, FIFA presented revenue on a disaggregated basis, by the type of service.

In the notes, FIFA further disaggregated each type of revenue into different categories, depending on the nature of the revenue.

For example, in note 1, FIFA disaggregated “Revenue from television broadcasting rights” by geographical region, while presenting “Revenue from marketing rights” by type of customer. Since FIFA does not need to comply with IFRS 8, the requirements in IFRS 15 115 do not apply.

EXAMPLE 4 – FIFA Note 1

FIFA Revenue in Statement OCI 2018

 

FIFA Revenue broadcasting 2018

FIFA Marketing rights 2018

 

FIFA Licensing rights 2018

End of example 4


CONSIDERATIONS

In accordance with IFRS 15 B88, an entity needs to consider how information about its revenue has been presented for other purposes, including information disclosed outside the financial statements, information regularly reviewed by the chief operating decision maker and other similar information used by the entity or users of the financial statements to evaluate the entity’s financial performance or to make resource allocation decisions.

As discussed above, to help determine the appropriate level of revenue disaggregation that is beneficial to users of the financial statements, entities should analyse specific risk factors for each revenue stream. Different risk factors for revenue streams may indicate when disaggregation is required.

Contract balances

The standard includes the following disclosure requirements for an entity’s contract balances and changes in the balances:

Disclosure requirements in IFRS 15

Quantitative

The opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed

IFRS 15 116(a)

Revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period

IFRS 15 116(b)

Revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, changes in transaction price)

IFRS 15 116(c)

Qualitative

Explanation of how the timing of satisfaction of its performance obligations relates to the typical timing of payment and the effect that those factors have on the contract asset and contract liability balances

IFRS 15 117

Quantitative or qualitative

Explanation of the significant changes in the contract asset and the contract liability balances during the reporting period, for example:

  • Changes due to business combinations

  • Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability (including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price) or a contract modification

Impairment of a contract asset

A change in the time frame for a right to consideration to become unconditional (i.e., for a contract asset to be reclassified to a receivable)

A change in the time frame for a performance obligation to be satisfied (i.e., for the recognition of revenue arising from a contract liability)

IFRS 15 118

CONSIDERATIONS

Disclosing contract assets and liabilities and the revenue recognised from changes in contract liabilities and performance obligations satisfied in previous periods was a change in practice for most entities on adoption of IFRS 15. IFRS 15 116(a) requires entities to separately disclose contract balances from contracts with customers.

Therefore, it is necessary for entities that have material receivables from non-IFRS 15 contracts to separate these balances for disclosure purposes. For example, an entity may have accounts receivable related to leasing contracts that would need to be disclosed separately from accounts receivable related to contracts with customers.

Entities need to make sure they have appropriate systems, policies and procedures and internal controls in place to collect and disclose the required information. For example, consider a sales-based or usage-based royalty received by the entity in reporting periods after it delivers a right-to-use licence of intellectual property.

In this example, the royalties relate to a previously satisfied performance obligation, but are revenue that the entity receives in subsequent periods. As such, they would be disclosed separately in accordance with IFRS 15 116(c).

The illustration below is an example of how an entity may fulfil these requirements by using a combination of tabular and narrative formats:

Illustrative example – Contract asset and liability disclosures

Company A presents receivables from contracts with customers separately in the statement of financial position. To comply with the other disclosures requirements for contract assets and liabilities, Company A includes the following information in the notes to the financial statements:

20×9

20×8

20×7

Contract asset

CU1,500

CU2,250

CU1,800

Contract liability

CU-200

CU-850

CU-500

Revenue recognised in the period from:

– Amounts included in contract liability at the beginning of the period

CU650

CU200

CU100

– Performance obligations satisfied in previous periods

CU200

CU125

CU200

We receive payments from customers based on a billing schedule, as established in our contracts. Contract asset relates to our conditional right to consideration for our completed performance under the contract. Accounts receivable are recognised when the right to consideration becomes unconditional.

Contract liability relates to payments received in advance of performance under the contract. Contract liabilities are recognised as revenue as (or when) we perform under the contract.

In addition, contract asset decreased in 20X9 due to a contract asset impairment of CU400 relating to the early cancellation of a contract with a customer.

In its significant accounting policies disclosure, Deutsche Telekom Aktiengesellschaft disclosed how the timing of satisfaction of its performance obligation relates to the typical timing of payment and the effect those factors have on the contract asset and contract liability balances.

Something else -   Contract asset

EXAMPLE 5 – Deutsche Telekom

ACCOUNTING POLICIES

……

NET REVENUE, CONTRACT ASSETS AND LIABILITIES/CONTRACT COSTS

……..

A contract asset must be recognized if Deutsche Telekom recorded revenue for fulfillment of a contractual performance obligation before the customer paid consideration or before – irrespective of when payment is due – the requirements for billing and thus the recognition of a receivable exist.

A contract liability must be recognized when the customer paid consideration or a receivable from the customer is due before Deutsche Telekom fulfilled a contractual performance obligation and thus recognized revenue. In a customer contract, contract liabilities must be set off against contract assets.

Multiple-element arrangements involving the delivery or provision of multiple products or services must be separated into distinct performance obligations, each with its own separate revenue contribution that is recognized as revenue on fulfillment of the obligation to the customer.

At Deutsche Telekom, this especially concerns the sale or lease of a mobile handset or other telecommunications equipment combined with the conclusion of a mobile or fixed-network telecommunications contract.

The total transaction price of the bundled contract is allocated among the individual performance obligations based on their relative – possibly estimated – standalone selling prices, i.e., based on a ratio of the standalone selling price of each separate element to the aggregated standalone selling prices of the contractual performance obligations.

As a result, the revenue to be recognized for products (often delivered in advance) such as mobile handsets that are sold at a subsidized price in combination with a long-term service contract is higher than the amount billed or collected.

This leads to the recognition of what is known as a contract asset – a receivable arising from the customer contract that has not yet legally come into existence – in the statement of financial position.

The contract asset is reversed and reduced over the remaining minimum contract period, lowering revenue from the other performance obligations (in this case: mobile service revenues) compared with the amounts billed. In contrast to the amounts billed, this results in higher revenue from the sale of goods and merchandise and lower revenue from the provision of services.

Customer activation fees and other advance one-time payments by the customer that do not constitute consideration for a separate performance obligation are classed as contract liabilities and are deferred and recognized as revenue over the minimum contract term or, in exceptional cases (e.g., in the case of contracts that can be terminated at any time) over the expected contract period.

The same applies to fees for installation and set-up activities that do not have an independent value for the customer.

As distinct from promotional offers, options to purchase additional goods or services free of charge or at a discount are separate performance obligations (material rights) for which part of the revenue is deferred as a contract liability until the option is exercised or expires, providing the discount on future purchases is an implicit component of the consideration for the current contract and is also significant.

The measure of significance is whether the decision by the (average) customer to enter into the current contract is likely to have been significantly influenced by their right to the future discount. Offers for volume discounts for the purchase of additional core products of an entity (e.g., a discount offered on an additional fixed-network contract for mobile customers) are classed by Deutsche Telekom as promotional offers to be excluded from consideration.

Long-term customer receivables (e.g., arising from sales of handsets in installments), contract assets (e.g., arising from the subsidized sale of a handset in connection with the conclusion of a long-term customer contract) or contract liabilities (e.g., arising from a prepayment by the customer) are recognized at present value if the financing component is significant in relation to the total contract value (i.e., including those performance obligations that do not contain a financing component).

The discount rate also reflects the customer credit risk. Deutsche Telekom makes use of the option not to recognize a significant financing component if the period between when a good or service is transferred to the customer and when the customer pays for that good or service will
be one year or less.

Payments to customers including credits or subsequent discounts are recognized as a reduction in revenue unless the payment constitutes consideration for a distinct good or service from the customer, for which the fair value can be reasonably estimated.

End of example 5


Before providing its disclosure of significant changes in contract balances, Airbus SE provided the accounting policies for its contract balances in the example 6 below. It then disclosed, in a table, the significant changes in the contract asset and the contract liability balances during the reporting period. The opening and closing balances are included in the primary financial statements.

EXAMPLE 6 – Airbus

Airbus annual report 2018 contract assets

End of example 6


ProSiebenSat.1 Media SE explained the nature of its contract assets and contract liabilities in below example 7. In note 5, it disclosed the opening and closing balances of contract assets and contract liabilities in a table.

Below the table, it explained the significant changes in the contract asset and contract liability balances during the reporting period using a narrative format. In the same note, ProSiebenSat.1 Media SE disclosed the revenue recognised that was included in the contract liability balance at the beginning of the period.

EXAMPLE 7 – ProSiebenSat.1 Media SE

ProSieben Contract assets 2018

End of example 7


As shown in the following example, ASML Holding N.V. included a roll-forward of contract assets and contract liabilities to disclose significant changes in the balances during the reporting period.

Although such a rollforward is not required under IFRS 15, it may be an effective way to provide the disclosures required by IFRS 15.118.

The requirement of the standard to disclose the “revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period” was incorporated in the roll-forward.

In addition, ASML Holding N.V. also provided a narrative explanation of the significant changes in the net contract balances during the reporting period.

EXAMPLE 8 – ASML Holding N.V.

31. Revenue from contracts with customers

………

ASML Holding NV Contract assets and liabilities 2018

 

ASML Holdings Movements contract assets

End of example 8

Performance obligations

Information about performance obligations

IFRS 15 requires an entity to disclose the following qualitative information about its performance obligations:

Disclosure requirements in IFRS 15

Qualitative

Information about performance obligations in contracts with customer, including a description of the following:

– When the entity typically satisfies its performance obligations (for example, upon shipment, upon delivery, as services are rendered or upon completion of service) including when performance obligations are satisfied in a bill-and-hold arrangement

IFRS 15 119(a)

– Significant payment terms (for example, when payment is typically due, whether the contract has a significant financing component, whether the consideration amount is variable and whether the estimate of variable consideration is typically constrained)

IFRS 15 119(b)

– The nature of the goods or services that the entity has promised to transfer, highlighting any performance obligations to arrange for another party to transfer goods or services (i.e., if the entity is acting as an agent)

IFRS 15 119(c)

– Obligations for returns, refunds and other similar obligations

IFRS 15 119(d)

– Types of warranties and related obligations

IFRS 15 119(e)

Aluminum Corporation of China Limited provided summarised qualitative information about its performance obligations in note 4 of its 2018 annual financial statements. In the same note, it provided quantitative information about its remaining performance obligations.

EXAMPLE 9 – Aluminum Corporation of China

4. REVENUE AND SEGMENT INFORMATION

…….

(a) Revenue

……..

(ii) Performance obligations

Information about the Group’s performance obligations is summarised below:

Revenue from sales of products (including sales of and other materials)

The performance obligation is satisfied upon delivery of the industrial products and payment is generally due with in 30 to 90 days from delivery, except for new customers, where payment in advance is normally required.

Sales of goods were made in a short period of time and the performance obligation was mostly satisfied in one year or less at the end of each year.

Rendering of services

The performance obligation is satisfied over time as services are rendered and payment is generally due upon completion of the relevant services.

The transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 31 December 2018 are as follows:

Within one year

1,579,322

More than one year

132,844

1,712,166

The remaining performance obligations expected to be recognised in more than one year relate to rendering of services that are to be satisfied within 1–10 years.

All the other remaining performance obligations are satisfied in one year or less at the end of each year.

End of example 9


Spotify Technology S.A. highlighted in its revenue note that the disclosures of its performance obligations are included in its significant accounting policy disclosures.

In its summary of significant accounting policies, Spotify Technology S.A. disclosed information about its performance obligations for subscription and advertising services. It described when it typically satisfies its performance obligations and the significant payment terms.

EXAMPLE 10 – Spotify

4. Revenue recognition

Revenue from contracts with customers

……..

(ii) Performance obligations

The Group discloses its policies for how it identifies, satisfies, and recognizes its performance obligations associated with its contracts with customers in Note 2.

2. Summary of significant accounting policies

……

(e) Revenue recognition

Premium revenue

The Group generates subscription revenue from the sale of the Premium Service in which customers can listen on-demand and offline. Premium Services are sold directly to end users and through partners who are generally telecommunications companies that bundle the subscription with their own services or collect payment for the stand-alone subscriptions from their end customers.

The Group satisfies its performance obligation, and revenue from these services is recognized, on a straight-line basis over the subscription period. Typically, Premium Services are paid for monthly in advance.

Premium partner subscription revenue is based on a per-subscriber rate in a negotiated partner agreement and may include minimum guarantees for the number of subscriptions that will be purchased from the Group. Under these arrangements, a premium partner may bundle the Premium Service with its existing product offerings or offer the Premium Service as an add-on.

Payment is remitted to the Group through the premium partner. When a minimum guarantee is within an agreement and the partner is not expected to meet the commitment, management has concluded the revenue is constrained to the revenue amounts for the actual subscriptions sold in a given period.

The Group therefore only recognizes the associated revenue when it is highly probable that this will not result in a significant reversal of revenue when the uncertainty is resolved.

The Group assesses the facts and circumstances, including whether the partner is acting as a principal or agent, of all partner revenue arrangements and then recognizes revenues either gross or net. Premium partner services, whether recognized gross or net, have one material performance obligation, that being the delivery of the Premium Service.

Additionally, the Group bundles the Premium Service with third-party services and products. Revenue is allocated to each performance obligation based on a standalone selling price for bundled arrangements with multiple performance obligations.

Ad-Supported revenue

The Group’s advertising revenue is primarily generated through display, audio, and video advertising delivered through advertising impressions. The Group enters into arrangements with advertising agencies that purchase advertising on its platform on behalf of the agencies’ clients.

These advertising arrangements are typically sold on a cost-per-thousand basis and are evidenced by an Insertion Order (“IO”) that specifies the terms of the arrangement such as the type of ad product, pricing, insertion dates, and number of impressions in a stated period.

Revenue is recognized over time based on the number of impressions delivered. The Group also may offer cash rebates to advertising agencies based on the volume of advertising inventory purchased. These rebates are estimated based on expected performance and historical data and result in a reduction of revenue recognized.

Additionally, the Group generates revenue through arrangements with certain suppliers to distribute advertising inventory on their ad exchange platforms for purchase on a cost-per-thousand basis. Revenue is recognized over time when impressions are delivered on the platform.

End of example 10


In the summary of significant accounting policies, UBS Group disclosed its performance obligations within the scope of IFRS 15. It divided those performance obligations between those that are ‘satisfied over time’ and those that are ‘satisfied at a point in time’.

EXAMPLE 11 – UBS Group

Note 1 Summary of significant accounting policies

……..

4) Fee and commission income and expenses

Policy applicable from 1 January 20181
UBS earns fee income from a diverse range of services it provides to its clients. Fee income can be divided into two broad categories: fees earned from services that are provided over a certain period of time, such as asset or portfolio management, custody services and certain advisory services; and fees earned from point-in-time services such as underwriting fees and brokerage fees (e.g., securities and derivative execution and clearing).

–>  Refer to Note 4 for more information, including the disaggregation of revenues

1 The accounting policy in this section applies from 1 January 2018, the effective date of IFRS 15. For the details of transition effects refer to Note 1b.

Performance obligations satisfied over time
Fees earned from services that are provided over a certain period of time are recognized on a pro rata basis over the service period, provided the fees are not contingent on successfully meeting specified performance criteria that are beyond the control of UBS (see measurement below).

Costs to fulfill services over time are recorded in the income statement immediately, because such services are considered to be a series of services that are substantially the same from day to day and have the same pattern of transfer.

The costs to fulfill neither generate nor enhance the resources of UBS that will be used to satisfy future performance obligations and cannot be distinguished between those that relate to satisfied and unsatisfied performance obligations.

Something else -   Consideration payable to a customer - Great 2 read

Therefore, these costs do not qualify to be recognized as an asset. Where costs incurred relate to contracts that include variable consideration that is constrained by factors beyond UBS’s control (e.g., successful mergers and acquisitions (M&A) activity) or where UBS has a history of not recovering such costs on similar transactions), such costs are expensed immediately as incurred.

Performance obligations satisfied at a point in time 
Fees earned from providing transaction-type services are recognized when the service has been completed, provided such fees are not subject to refund or another contingency beyond the control of UBS.

Incremental costs to fulfill services provided at a point in time are typically incurred and recorded at the same time as the performance obligation is satisfied and revenue is earned, and are therefore not recognized as an asset, e.g., brokerage.

Where recovery of costs to fulfill relates to an uncompleted point-in time service for which the satisfaction of the performance obligation in the contract is dependent upon factors beyond the control of UBS, such as underwriting a successful securities issuance, or where UBS has a history of not recovering such costs through reimbursement on similar transactions, such costs are expensed immediately as incurred.

End of example 11


As part of its disclosure of information about its performance obligations, as presented in the example 12 below, Koninklijke Philips N.V. provided information about the nature of its goods and services (e.g., consumer type products, brand and technology licences), the timing of satisfaction of their performance obligations and the significant payment terms.

It also provided information about the existence of sales returns and assurance-type warranties.

EXAMPLE 12 – Koninklijke Philips N.V.

Notes to the Consolidated financial statements of the Philips Group

1. Significant accounting policies

Policies that are more critical in nature

Revenue recognition
Revenue from the sale of goods in the normal course of business is recognized at a point in time when the performance obligation is satisfied and it is based on the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of the consideration to which the company expects to be entitled in exchange for transferring the promised goods to the customer.

The consideration expected by the company may include fixed and/or variable amounts which can be impacted by sales returns, trade discounts and volume rebates. The company adjusts the consideration for the time value of money for the contracts where no explicit interest rate is mentioned if the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds six months.

Revenue for the sale of goods is recognized when control of the asset is transferred to the buyer and only when it is highly probable that a significant reversal of revenue will not occur when uncertainties related to a variable consideration are resolved.

Transfer of control varies depending on the individual terms of the contract of sale. For consumer-type products in the segment of Personal Health, control is transferred when the product is shipped and delivered to the customer and title and risk have passed to the customer (depending on the delivery conditions) and acceptance of the product has been obtained.

Examples of delivery conditions are ‘Free on Board point of delivery’ and ‘Costs, Insurance Paid point of delivery’, where the point of delivery may be the shipping warehouse or any other point of destination as agreed in the contract with the customer and where control is transferred to the customer.

Revenues from transactions relating to distinct goods or services are accounted for separately based on their relative stand-alone selling prices. The stand-alone selling price is defined as the price that would be charged for the goods or service in a separate transaction under similar conditions to similar customers (adjusted market assessment approach or expected costs plus margin approach), which within the company is mainly the Country Target Price (CTP).

The transaction price determined (taking into account variable considerations) is allocated to performance obligations based on relative stand-alone selling prices.

These transactions mainly occur in the segments Diagnosis & Treatment and Connected Care & Health Informatics and include arrangements that require subsequent installation and training activities in order to make distinct goods operable for the customer.

As such, the related installation and training activities are part of equipment sales rather than separate performance obligations. Revenue is recognized when the performance obligation is satisfied, i.e. when the installation has been completed and the equipment is ready to be used by the customer in the way
contractually agreed.

Revenues are recorded net of sales taxes. A variable consideration is recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Such assessment is performed on each reporting date to check whether it is constrained.

For products for which a right of return exists during a defined period, revenue recognition is determined based on the historical pattern of actual returns, or in cases where such information is not available revenue recognition is postponed until the return period has lapsed. Return policies are typically based on customary return arrangements in local markets.

A provision is recognized for assurance-type product warranty at the time of revenue recognition and reflects the estimated costs of replacement and free-of-charge services that will be incurred by the company with respect to the products sold.

For certain products, the customer has the option to purchase the warranty separately, which is considered a separate performance obligation on top of the assurance-type product warranty. For such warranties which provide distinct service, revenue recognition occurs on a straight-line basis over the extended warranty contract period.

In the case of loss under a sales agreement, the loss is recognized immediately. Expenses incurred for shipping and handling of internal movements of goods are recorded as cost of sales. Shipping and handling related to sales to third parties are recorded as selling expenses.

When shipping and handling are part of a project and billed to the customer, then the related expenses are recorded as cost of sales. Shipping and handling billed to customers are distinct and separate performance obligations and recognized as revenues.

Expenses incurred for sales commissions that are considered incremental to the contracts are recognized immediately in the Consolidated statements of income as selling expenses as a practical expedient under IFRS 15.

Revenue from services is recognized over a period of time as the company transfers control of the services to the customer which is demonstrated by the customer simultaneously receiving and consuming the benefits provided by the company.

The amount of revenues is measured by reference to the progress made towards complete satisfaction of the performance obligation, which in general is evenly over time. Service revenue related to repair and maintenance activities for goods sold is recognized ratably over the service period or as services are rendered.

Royalty income from brand license arrangements is recognized based on a right to access the license, which in practice means over the contract period based on a fixed amount or reliable estimate of sales made by a licensee.

Royalty income from intellectual property rights such as technology licenses or patents is recognized based on a right to use the license, which in practice means at a point in time based on the contractual terms and substance of the relevant agreement with a licensee.

However, revenue related to intellectual property contracts with variable consideration where a constraint in the estimation is identified, is recognized over the contract period and is based on actual or reliably estimated sales made by a licensee.

The company receives payments from customers based on a billing schedule or credit period, as established in our contracts. Credit periods are determined based on standard terms, which vary according to local market conditions.

Amounts posted in deferred revenue for which the goods or services have not yet been transferred to the customer and amounts that have either been received or are due, are presented as Contract liabilities in the Consolidated balance sheets.

End of example 12


In its 2018 annual financial statements, ASML Holding N.V. provided a table that includes information about its performance obligations as shown in the example below. The first column provided details of the various performance obligations.

The second column provided information about the nature and satisfaction of these performance obligations and details of payment terms.

EXAMPLE 13 – ASML Holding N.V.

Notes to the Consolidated Financial Statements

……

3. Summary of significant accounting policies

…….

ASML Holding Revenue performance obligations

 

ASML Holding Revenue performance obligations 2

 

ASML Holding Revenue performance obligations 3

End of example 13

Transaction price allocated to remaining performance obligations

IFRS 15 also requires an entity to provide information about unsatisfied or partially satisfied performance obligations, as follows:

Disclosure requirements in IFRS 15

Quantitative

The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period

IFRS 15 120(a)

Quantitative or qualitative

An explanation of when the entity expects to recognise this amount as revenue, using either:

• Quantitative information (i.e., using time bands that would be most appropriate for the duration of the remaining performance obligations)

Or

• Qualitative information

IFRS 15 120(b)

Practical expedient

An entity needs not to disclose information about the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied, when either of the following conditions is met:

  • The original expected duration of the underlying contract is one year or less

  • The entity recognises revenue from the satisfaction of the performance obligation in accordance with IFRS 15 B16.

That paragraph permits, as a practical expedient, that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognise revenue in the amount to which the entity has a right to invoice.

IFRS 15 121

Qualitative

An entity must explain qualitatively whether it is applying the practical expedient in IFRS 15 121 and whether any consideration from contracts with customers is not included in the transaction price and, therefore, not included in the information disclosed in accordance with IFRS 15 120. For example, an estimate of the transaction price would not include any estimated amounts of variable consideration that are constrained.

IFRS 15 122

The standard provides the following examples of these required disclosures:


Example 42—Disclosure of the transaction price allocated to the remaining performance obligations

IE212 On 30 June 20X7, an entity enters into three contracts (Contracts A, B and C) with separate customers to provide services. Each contract has a two-year non-cancellable term. The entity considers the requirements in paragraphs 120–122 of IFRS 15 in determining the information in each contract to be included in the disclosure of the transaction price allocated to the remaining performance obligations at 31 December 20X7.

Contract A

IE213 Cleaning services are to be provided over the next two years typically at least once per month. For services provided, the customer pays an hourly rate of CU25.

IE214 Because the entity bills a fixed amount for each hour of service provided, the entity has a right to invoice the customer in the amount that corresponds directly with the value of the entity’s performance completed to date in accordance with paragraph B16 of IFRS 15. Consequently, no disclosure is necessary if the entity elects to apply the practical expedient in paragraph 121(b) of IFRS 15.

Contract B

IE215 Cleaning services and lawn maintenance services are to be provided as and when needed with a maximum of four visits per month over the next two years. The customer pays a fixed price of CU400 per month for both services. The entity measures its progress towards complete satisfaction of the performance obligation using a time-based measure.

IE216 The entity discloses the amount of the transaction price that has not yet been recognised as revenue in a table with quantitative time bands that illustrates when the entity expects to recognise the amount as revenue. The information for Contract B included in the overall disclosure is as follows:

20X8   20X9 Total
CU CU CU
Revenue expected to be recognised on this contract as of 31 December 20X7 4,800(a)  2,400(b)  7,200
(a) CU4,800 = CU400 × 12 months.
(b) CU2,400 = CU400 × 6 months.

Contract C

IE217 Cleaning services are to be provided as and when needed over the next two years. The customer pays fixed consideration of CU100 per month plus a one-time variable consideration payment ranging from CU0–CU1,000 corresponding to a one-time regulatory review and certification of the customer’s facility (ie a performance bonus).

The entity estimates that it will be entitled to CU750 of the variable consideration. On the basis of the entity’s assessment of the factors in paragraph 57 of IFRS 15, the entity includes its estimate of CU750 of variable consideration in the transaction price because it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur.

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The entity measures its progress towards complete satisfaction of the performance obligation using a time-based measure.

IE218 The entity discloses the amount of the transaction price that has not yet been recognised as revenue in a table with quantitative time bands that illustrates when the entity expects to recognise the amount as revenue.

The entity also includes a qualitative discussion about any significant variable consideration that is not included in the disclosure. The information for Contract C included in the overall disclosure is as follows:

20X8   20X9 Total
CU CU CU
Revenue expected to be recognised on this contract as of 31 December 20X7 1,575(a) 788(b) 2,363
(a) Transaction price = CU3,150 (CU100 × 24 months + CU750 variable consideration) recognised evenly over 24 months at CU1,575 per year.
(b) CU1,575 ÷ 2 = CU788 (ie for 6 months of the year).

IE219 In addition, in accordance with paragraph 122 of IFRS 15, the entity discloses qualitatively that part of the performance bonus has been excluded from the disclosure because it was not included in the transaction price.

That part of the performance bonus was excluded from the transaction price in accordance with the requirements for constraining estimates of variable consideration.


The standard also provides an example of how an entity would make the disclosure required by IFRS 15 120(b) using qualitative information (instead of quantitatively, using time bands), as follows:


Example 43—Disclosure of the transaction price allocated to the remaining performance obligations—qualitative disclosure

IE220 On 1 January 20X2, an entity enters into a contract with a customer to construct a commercial building for fixed consideration of CU10 million. The construction of the building is a single performance obligation that the entity satisfies over time.

As of 31 December 20X2, the entity has recognised CU3.2 million of revenue. The entity estimates that construction will be completed in 20X3, but it is possible that the project will be completed in the first half of 20X4.

IE221 At 31 December 20X2, the entity discloses the amount of the transaction price that has not yet been recognised as revenue in its disclosure of the transaction price allocated to the remaining performance obligations. The entity also discloses an explanation of when the entity expects to recognise that amount as revenue.

The explanation can be disclosed either on a quantitative basis using time bands that are most appropriate for the duration of the remaining performance obligation or by providing a qualitative explanation. Because the entity is uncertain about the timing of revenue recognition, the entity discloses this information qualitatively as follows:

‘As of 31 December 20X2, the aggregate amount of the transaction price allocated to the remaining performance obligation is CU6.8 million and the entity will recognise this revenue as the building is completed, which is expected to occur over the next 12–18 months.’


Bombardier Inc. used time bands to disclose information about remaining performance obligations in its 2018 annual financial statements. In the example 14 below, it also explicitly disclosed that constrained variable consideration is excluded from the amounts disclosed. This is a helpful reminder for users of financial statements and it indicates amounts recognised in future periods may be higher than those included in the table.

EXAMPLE 14 – Bombardier Inc.

Bombardier backlog 2018

End of example 14


Capita plc separately disclosed the transaction price allocated to remaining performance obligations, with a period of more than two years and those with a period of less than two years, within the segment note in its 2018 annual financial statements.

It then further disaggregated the contracts with remaining performing obligations with a period more than two years into additional time bands. In this context, Capita plc disaggregated its revenue by contract type (i.e., contracts with an initial contract period of less than two years and those with more than two years).

Example 15 – Capita plc

CApita plc FS 2018 Order book

End of example 15

In contrast to the previous extract, SAP SE used a non-tabular approach when disclosing information about remaining performance obligations. The following practical example is from note 1 of its 2018 annual financial statements and disclosed information about its remaining performance obligations to provide “software support or cloud subscriptions and support”.

EXAMPLE 16 – SAP SE

SAP FS 2018 Remaining performance obligations

End of example 16

Significant judgements

The standard specifically requires disclosure of significant accounting estimates and judgements made in determining the transaction price, allocating the transaction price to performance obligations and determining when performance obligations are satisfied. [IFRS 15 123] These requirements are in addition to the general requirements for significant judgements and accounting estimates in IAS 1. [IAS 1 122 – 133]

The following chart provides an overview of the disclosure requirements in IFRS 15 about significant judgements:

Significant judgement disclosures

The requirements are explained in more detail below.

Determining the timing of satisfaction of performance obligations

IFRS 15 requires entities to provide disclosures about the significant judgements made in determining the timing of satisfaction of performance obligations.

The disclosure requirements for performance obligations that are satisfied over time differ from those satisfied at a point in time, but the objective is similar: to disclose the judgements made in determining the timing of revenue recognition. Entities must disclose the following information:

Disclosure requirements in IFRS 15

Qualitative

For performance obligation satisfied over time:

  • The methods used to recognise revenue (for example, a description of the output methods or input methods used and how those methods are applied)

  • An explanation of why the methods used provide a faithful depiction of the transfer of goods or services

IFRS 15 124

 

For performance obligations satisfied at a point in time, significant judgements made in evaluating when a customer obtains control of promised goods or services

IFRS 15 125

In example 13 (in section Performance obligations above), ASML Holding N.V. described the methods used to recognise its revenue over time and explained the relationship between the methods and the different types of services it provides. Koninklijke Philips N.V. recognised revenue at a point in time in relation its consumer type-products sales.

Practical example 12 (see above) provided a description of when control transfers to the customer for these sales.

In example 16 below, SAP SE provided disclosure of the significant judgement involved in determining the satisfaction of its performance obligations.

It explained how it determines whether its software offerings provide customers with a right to use or a right to access its intellectual property. It also described the judgement involved in identifying the appropriate method to measure the progress of its performance obligations satisfied over time.

Example 16 – SAP SE

(A.1) Revenue

…..

Accounting Policies, Judgments, and Estimates

SAP A1 Revenue 333

End of example 16

Determining the transaction price and the amounts allocated to performance obligations

Given the importance placed on revenue by financial statement users, the standard requires entities to disclose qualitative information about the methods, inputs and assumptions used in their annual financial statements to determine the transaction price and allocate it, as follows:

Disclosure requirements in IFRS 15

Qualitative

Information about methods, inputs and assumptions used for the following:

  • Determining the transaction price, which includes, but is not limited to:

    • Estimating variable consideration

    • Considering the effects of time value of money

    • Measuring fair value of non-cash consideration

  • Assessing whether an estimate of variable consideration is constrained

  • Allocating the transaction price, including:

    • Estimating stand-alone selling prices of promised goods or services

    • Allocating discounts to a specific part of the contract (if applicable)

    • Allocating variable consideration to a specific part of the contract (if applicable)

  • Measuring obligations for returns, refunds and other similar obligations

IFRS 15 126

CONSIDERATIONS

Disclosing information about the methods, inputs and assumptions they use to determine and allocate the transaction price was a change in practice for some entities.

Entities with diverse contracts need to make sure they have the processes and procedures in place to capture all of the different methods, inputs and assumptions used in determining the transaction price and allocating it to performance obligations.

Since fee arrangements often include contingencies (e.g., No Win-No-Fee arrangements), Slater and Gordon Limited estimated variable consideration when determining the transaction price as presented in the example 17 below.

Therefore, it disclosed information about the method (i.e., most likely amount approach), inputs and assumptions (i.e., management’s assessment and the probability of success of each case) in its 2018 annual financial statements.

Furthermore, Slater and Gordon Limited disclosed information about the assessment of whether a significant financing component exists. The entity concluded that contracts generally comprise only one performance obligation. As such, Slater and Gordon Limited did not disclose information about the allocation of the transaction price.

Example 17 – Slater and Gordon Limited

Notes to the Financial Statements

3.1.1 Accounting policies (continued)

……

17Slater and Gordon Limited Provision of legal services 2018

End of example 17


In example 12 (see above), Koninklijke Philips N.V. explains the need to estimate variable consideration in relation to returns.

Assets recognised from the costs to obtain or fulfil a contract

IFRS 15 requires entities to disclose information about the assets recognised to help users understand the types of costs recognised as assets, and how those assets are subsequently amortised or impaired. The disclosure requirements are, as follows:

Disclosure requirements in IFRS 15

Qualitative

Description of the judgements made in determining the amount of the costs incurred to obtain or fulfil a contract with a customer

IFRS 15.127(a)

The method it uses to determine the amortisation for each reporting period

IFRS 15.127(b)

Quantitative

The closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer, by main category of asset (for example, costs to obtain contracts with customers, pre-contract costs and setup costs)

IFRS 15.128(a)

The amount of amortisation recognised in the reporting period

IFRS 15.128(b)

The amount of any impairment losses recognised in the reporting period

IFRS 15.128(c)

In the following example 18, Capita plc disclosed its accounting policy on assets recognised from costs to fulfil and costs to obtain a contract in note 2 on “Summary of significant accounting policies” in its 2018 annual financial statements.

EXAMPLE 18 – Capita plc

Capita Contract fullfillment 2018

End of example 18

This is followed by a description of how it determined the amortisation period and assessed the assets for impairment. In note 17, Capita plc provided quantitative disclosures of “contract fulfilment assets”, separately disclosing the closing balance, the amount that was utilised (i.e., amortisation expense) and the amount of impairment losses for each reporting period.

EXAMPLE 19 – Capita plc

Capita contract fulfilment assets 2018

Practical expedients

The standard allows entities to use several practical expedients and requires them to disclose their use of the following two practical expedients

Disclosure requirements in IFRS 15

Qualitative

The fact that an entity elects to use one of the practical expedients about:

  • The existence of a significant financing component (IFRS 15 63)

  • Incremental costs of obtaining a contract (IFRS 15 94)

IFRS 15 129

In addition, entities are required to disclose the use of the disclosure practical expedient in IFRS 15 121 (which permits an entity not to disclose information about remaining performance obligations if one of the conditions in the paragraph are met, see section ‘Transaction price allocated…‘ above). IFRS 15 provides other practical expedients.

While not explicitly required, entities need to consider whether to disclose that they used them.

In example 5 (in contract balances above), Deutsche Telekom Aktiengesellschaft disclosed that it elected to use the practical expedient “not to recognise a significant financing component if the period between when a good or service is transferred to the customer and when the customer pays for that good or service will be one year or less”.

Koninklijke Philips N.V. disclosed its application of IFRS 15.94 relating to incremental costs of obtaining a contract in example 12 (see above).

In example 7 (in contract balances above), ProSiebenSat.1 Media SE disclosed that it elected to use the practical expedient in IFRS 15.121(a) in relation to the remaining performance obligation disclosure requirement.

ASML Holding N.V. disclosed that it uses the ‘right to invoice’ practical expedient in IFRS 15 B16 for its performance obligations relating to “Service contracts” and “OnPulse maintenance” in example 13 (see Performance obligations above).

See also: IFRS Community IFRS 15 Disclosure

IFRS 15 Revenue aggregation and disaggregation

IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation

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IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation

IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation

IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation

IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation IFRS 15 Revenue aggregation and disaggregation

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